Signs of the Accelerator Bubble

There have never been so many bootcamps, hackathons, and accelerators to help entrepreneurs start up. And that's precisely the problem.

Late last week, I learned about the existence of Coworking-Camp, a sunny six-week retreat for start-up founders to gather in a four-star hotel in a Mediterranean city, bounce start-up ideas off each other, and "escape the cold European winter." For about $2,000, the concept is pitched as "unique opportunity to combine work and fun." Founder Romy Sigl told VentureBeat "we'll have networking events, a 'Showtime' event every Monday to pitch what you're doing, and people can work every day however they want."

There was a time when the idea of a cash-strapped founder paying thousands of dollars to fly halfway around the world to sit pool-side at an exotic resort may have seemed somewhat ludicrious. Not anymore.

There are, it seems, an almost incalculable number of programs, trips, seminars, coworking retreats, start-up bootcamps, and hackathons designed to help entrepreneurs (for a fee, of course) start or grow their business idea. While it's unclear how many of these services are actually successful at graduating real, revenue-generating businesses, what is clear is that the market for these services is booming: it's a good time to be in the secondary market for entrepreneurship.

I've documented my skepticism about the proliferation of these weekend-style start-up bootcamps, but I don't believe there's anything particularly insidious about them. They don't take equity, they rarely cost more than a couple hundred bucks, and though they rarely graduate successes, most people walk away feeling like they've learned a thing or two about what it would be like to start a business, even if they never actually quit their day job.

The Real Problem

But a (potentially) more predatory and (certainly) more unsustainable side to this booming secondary market, however, is the growing number of incubators and accelerators. In exchange for a chunk of equity, they offer a drop of cash, desk space, and the promise of mentorship and future VC connections.

You probably already know about the marquee accelerator successes--like Airbnb or Dropbox, which both graduated from Y Combinator. The reality is, they are the exceptions. Few accelerators or incubators spawn companies that have gone on to much success.

The early research into the success of accelerators indicates that only the top-tier, highly selective programs (like YC and TechStars) have had much success in building start-ups that go on to raise money from outside investors.

Aziz Gilani, a seed-stage investor at Mercury Fund, recently studied the efficacy of 30 U.S. accelerators and eight European accelerators. His findings were a compelling case for the argument that second-tier accelerators weren't worth the loss of equity. He reported that the "vast majority of accelerators have neither funding nor liquidity events." And of 618 start-ups that emerged from 38 incubators, 50 percent came from the top three--Techstars, YC, and Seedcamp. In other words, despite the massive proliferation of the number of accelerators, only the best programs have been successful.

The Bust Is Coming

Others in the space tend to agree.

"The majority of accelerators are not good for companies and will fail," David Tisch, a former partner at TechStars said recently. "There are too many of them. The idea of applying to just any accelerator is totally silly. A company should do homework and figure out which one is right for them."

Last year, Paul Graham told CNET basically the same thing, saying, "But all these accelerators... a lot of them will just fail."

The vast majority of the start-ups coming out of most of these accelerators will fail, too. There's nothing particularly wrong with start-up optimism (or even failure, for that matter) but there is something wrong with the delusional--and expensive belief--that being accepted into an accelerator or incubator is, in itself, a success. It's not.

Know Your Currency

This isn't to say that signing up for an accelerator will predestine a young company to fail, either. As Erin Griffith notes on PandoDaily: "It would be lazy to issue a sweeping dismissal of accelerators. The 'should you or shouldn't you' question is nuanced and different for each company."

But what is universal, however, is looking at the known data, which seem to indicate that for the relatively high amount of equity you give up to join an accelerator, there are relatively low odds that the accelerator will help you become the next Airbnb.

"When you're a young start-up and you don't have a lot of cash, you have one currency, your equity," Gilani told ReadWriteWeb recently. "So treat an accelerator like any other service provider. Be rigorous in your diligence. Or make the decision not to join one."